HSBC: Mid-Market Businesses Vital to Dynamic Global Economy

The often-neglected mid-market tier of enterprises (MMEs) – firms with an annual turnover between US$50m and US$500m – are key to ensuring a prosperous and dynamic economy, according to a report commissioned by HSBC.

However, the bank notes that despite their importance, policy and research to date has focused almost exclusively on small and medium-sized businesses (SMEs) or very large enterprises (MNCs).

The report indicates that the economic contribution of MMEs is substantial. They contribute a large proportion of gross domestic product (GDP) in most countries, sustain millions of jobs, and are vital to the functioning of a dynamic economy, bringing new innovations and products to the market and competing with large incumbents, forcing them to raise their game.

“This report shows that MMEs are at the very heart of the economy in Asia Pacific and support a staggering amount of activity in the region,” said Tim Evans, head of MMEs for HSBC Asia Pacific.

“Many MMEs are now looking to expand beyond their domestic markets due to their part in the global supply chain, and due to advances in technology, they too can now benefit from cross-border activity that was previously the preserve of MNCs and large corporate companies. Via their direct and indirect contribution to growth, employment and competition, the role of MMEs is essential to a vibrant economy and can no longer be ignored.”

Where are MMEs?

The sector structure of MMEs varies greatly from one country to another. Less developed economies tend to be dominated by primary activities such as agriculture and mining and generally have small MME sectors.

Low- to middle-income countries, such as China and India, tend to undertake a large amount of secondary, typically manufacturing, activity, and tend to stimulate a high degree of economic activity in their supply chains. Meanwhile, developed economies, such as Singapore and Hong Kong, are increasingly dominated by service industries.

Manufacturing accounts for nearly 39.5% of all MME direct economic impact in China (the world’s manufacturer), but only 1.8% in Hong Kong (a heavily service-orientated economy). Meanwhile, business services MMEs represent just 4.1% of India’s total MME direct economic impact (the least).

Direct economic contribution

It is estimated that MMEs directly account for between 10% and 17% of gross value added (GVA) across the 15 countries examined in this report. The research estimates that 161,800 MMEs have a combined turnover of US$16.6 trillion and contribute $4.8 trillion in GVA.

MMEs in China directly contribute US$1 trillion to GVA, which is equivalent to 15.2% of national GDP while Indian MMEs directly contribute almost US$192bn, 12.3% of national GDP. The relatively smaller markets of Singapore and Hong Kong contribute US$39bn (13.2% of GDP) and US$34bn (14.5% of GDP) respectively.

While the direct economic activity of MME firms in each country is substantial, their full economic impact is in fact much more significant than this. Indirectly, MMEs sustain wider activity elsewhere in the economy through the demand they generate in their supply chains, and the wage-financed consumption of their employees.

Supply chain impact

On the whole, manufacturing MMEs in middle-income countries such as China and India tend to have large domestic supply chains in which a substantial amount of economic activity takes place. Indirectly, China contributes an additional US$1.8 trillion in GVA on top of its direct contribution, while India contributes an additional US$288.6bn in GVA.

By contrast manufacturing MMEs in advanced countries, such as Singapore and Hong Kong, tend to be involved in higher value-adding work, and hence have relatively smaller supply chains. Business services – a dominant form of MME in advanced countries – tend to have limited supply chains, with much of the value generated the MMEs themselves rather than in their supply chains. These indirect/induced impacts mean that MMEs sustain between 20% and 40% of GVA.

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